CORPORATE TAX IN TURKEY: ESSENTIAL CONSIDERATIONS FOR FOREIGN BUSINESSES

Turkey stands out as a significant hub for investors due to its strategic location, vast market potential, and well-developed production infrastructure. For both domestic and foreign investors planning to establish a company or conduct business activities in Turkey, accurately analyzing obligations of corporate tax in Turkey is of great importance. To operate in compliance with legal regulations, optimize cost advantages, and minimize tax risks, businesses must implement a solid tax planning strategy.

Corporate tax, one of the cornerstones of tax legislation, is a direct tax levied on the annual earnings of capital companies, cooperatives, state-owned enterprises, and certain other legal entities conducting business activities in Turkey. The primary legal framework governing corporate tax is the Corporate Tax Law No. 5520, which sets forth provisions regarding taxpayer classifications, tax base calculations, tax rates, and applicable exemptions.

While corporate tax regulations in Turkey apply to both domestic and foreign companies, the tax obligations and potential advantages for international investors may vary depending on the nature of their commercial activities, organizational structure, and Turkey’s Double Taxation Avoidance Agreements.

Proper management of corporate tax not only provides cost benefits for investors but also minimizes legal and financial risks. Compliance with tax legislation, maximizing the benefits of tax incentives, and aligning business operations with international tax regulations play a crucial role in ensuring long-term competitiveness.

I. Corporate Tax Liability in Turkey

For legal entities operating in Turkey, corporate tax liability varies depending on their legal status, management location, and scope of activities. Under the Corporate Tax Law, capital companies, cooperatives, state-owned enterprises, and certain other legal entities generating income in Turkey are considered corporate taxpayers.

Corporate tax liability is determined based on whether a company’s registered office or place of management is located in Turkey. In this context, companies are assessed under two distinct taxation principles: resident taxpayer (full liability) and non-resident taxpayer (limited liability).

1.1. Resident Taxpayer (Full Liability) and Its Scope

Companies with either their legal headquarters or place of management in Turkey are classified as resident taxpayers (full liability). Entities subject to full taxation are required to pay corporate tax on all their earnings, both within and outside Turkey.

The following entities are considered resident taxpayers under the Turkish Commercial Code and Tax Legislation:

• Joint-stock companies (Anonim Şirket – A.Ş.) and limited liability companies (Limited Şirket – Ltd. Şti.)
• Cooperatives
• State-owned enterprises
• Economic enterprises affiliated with associations or foundations
• Business partnerships

The tax obligations of resident taxpayers are not limited to their commercial activities in Turkey. Foreign-sourced income is also subject to corporate tax in Turkey, with taxation governed by the Double Taxation Avoidance Agreements (DTAAs) that Turkey has entered into with other countries.

1.2. Non-Resident Taxpayer (Limited Liability) and Taxable Income in Turkey

Companies with both their legal headquarters and place of management outside Turkey are classified as non-resident taxpayers (limited liability). These companies are taxed only on their income derived from sources within Turkey.

According to the Corporate Tax Law, the taxable income for non-resident taxpayers as follows:

• Commercial income derived through a permanent establishment or a permanent representative in Turkey by foreign companies,
• Income from securities and financial assets in Turkey,
• Rental income from real estate located in Turkey,
• Income from services rendered or professional activities performed in Turkey,
• Other types of income and earnings specified in the Income Tax Law that originate in Turkey.

The tax obligations of non-resident taxpayers may vary depending on the sector and business model in which they operate. If a foreign company has a branch, permanent establishment, or permanent representative in Turkey, the income generated through these entities is directly subject to corporate tax. However, for foreign companies with no physical presence in Turkey but supplying goods or services to the Turkish market, taxation is generally conducted through withholding tax.

1.3. Determining Taxpayer Status

The classification of a company as either a resident or non-resident taxpayer is generally based on the country where its business management and strategic decision-making processes take place. If a company’s actual management and decision-making functions are conducted in Turkey, it may be considered a resident taxpayer. Conversely, companies conducting certain business operations in Turkey while maintaining their management headquarters abroad are categorized as non-resident taxpayers.

Taxpayer status is a critical factor for foreign companies planning to establish a presence in Turkey or generate income from Turkish sources. The distinction between resident and non-resident taxation directly impacts a company’s tax obligations, filing processes, and overall tax planning strategy. Therefore, careful assessment of this classification is essential.

II. Corporate Tax Rate

Companies operating in Turkey are subject to taxation on their net corporate income under the Corporate Tax Law No. 5520. The calculation of corporate tax involves several key elements, including determining taxable profits, deducting allowable expenses, and applying exemptions. To effectively manage their corporate tax liabilities, investors must be well-informed about applicable tax rates, the method of calculating the tax base, and potential exemptions.

The corporate tax rate in Turkey may vary over the years. As of 2025, the applicable rate is 25%. This rate is subject to revisions based on legislative amendments and economic conditions, making it essential for investors to stay updated on current regulations.

Corporate tax is calculated on a company’s net profit, meaning it is levied on the remaining taxable income after deducting legally recognized expenses, losses, depreciation, and applicable exemptions and incentives.

In certain industries or investment types, the actual tax burden may be reduced due to investment incentives, R&D deductions, and tax advantages provided to companies operating in free zones. However, to benefit from such exemptions and incentives, companies must meet specific criteria and follow the necessary procedures.

III. Corporate Tax Declaration and Payment Process

Corporate taxpayers operating in Turkey are required to declare and pay their taxable income at designated intervals. Corporate tax is assessed through an annual tax return, while companies must also make provisional tax payments on a quarterly basis.

3.1. Annual Corporate Tax Return

Corporate taxpayers are obligated to file their annual corporate tax return by the end of the fourth month following the end of the fiscal year. The tax return is submitted electronically to the Revenue Administration (Gelir İdaresi Başkanlığı – GİB), and the taxpayer is responsible for paying the assessed tax amount based on the return.

The tax return includes details of the company’s commercial profits, deductible expenses, exemptions, and tax incentives applied throughout the previous fiscal year. It is crucial for companies to ensure that all information declared in the return is accurate and complete, as incomplete or incorrect declarations may result in administrative fines and late payment interest.

3.2. Provisional Taxation and Payment Schedule

Corporate taxpayers in Turkey are required to make provisional tax payments before filing their annual tax return. Provisional corporate tax is calculated on a quarterly basis, and the tax paid during these periods is offset against the final corporate tax liability. The provisional tax rate is the same as the corporate tax rate, which is 25% for 2025.

3.3. Tax Payments and Potential Penalties

Corporate tax and provisional tax must be paid by the deadline for submission of the respective tax return. Failure to make timely payments results in the imposition of late payment interest and tax loss penalties. Late payment interest is calculated on a monthly basis at a rate determined by the authorities. To avoid such additional financial burdens, taxpayers must carefully manage their payment schedules.

Additionally, if a tax audit reveals underreported or incorrect tax filings, the authorities may impose tax loss penalties and procedural fines. The tax loss penalty can be equal to the amount of the unpaid tax and, in some cases, may be increased.

To ensure full compliance with tax regulations, the Turkish tax authorities periodically conduct audits to verify the consistency of companies’ tax returns with their actual financial records. Properly managing tax declarations and ensuring full compliance with tax legislation can help businesses mitigate potential financial and legal risks during tax inspections.

IV. Corporate Tax Incentives and Exemptions

To encourage investment and support economic growth in certain sectors, Turkey offers various corporate tax incentives and exemptions. These incentives help businesses reduce their tax burden and establish a more competitive financial structure. Corporate tax incentives fall into several categories, including investment incentive certificates, R&D and innovation activities, tax privileges granted to companies operating in free zones, and sector-specific exemptions.

4.1. Investment Incentive Scheme and Corporate Tax Benefits

Under Turkey’s Investment Incentive Scheme, administered by the Ministry of Industry and Technology, domestic and foreign companies investing in Turkey can benefit from a range of tax advantages. Companies holding investment incentive certificates may be eligible for benefits such as corporate tax reduction, VAT and customs duty exemptions, employer social security premium support, and interest support.

4.2. Corporate Tax Incentives for R&D, Innovation, and Design Activities

Turkey promotes R&D, innovation, and design activities through the Law No. 5746 on Supporting Research, Development, and Design Activities. Companies operating in R&D centers, technology development zones (technoparks), or specific R&D projects can benefit from various tax advantages, including corporate tax reductions, income tax exemptions for R&D personnel, and exemptions from certain social security contributions.

4.3. Tax Advantages for Companies Operating in Free Zones

Turkey’s free zones, established under the Free Zones Law No. 3218, offer substantial tax advantages to businesses engaged in production and export-oriented activities. Companies operating in these zones may benefit from corporate tax exemptions, income tax exemptions, and VAT exemptions, depending on their field of activity and compliance with applicable regulations.

V. Tax Risks and Compliance

Companies operating in Turkey must ensure full compliance with tax regulations to fulfill their corporate tax obligations and minimize potential tax risks. Tax audits, transfer pricing regulations, incorrect declarations, and improper use of tax incentives are among the key risks that may result in significant financial and legal consequences for businesses.

Managing tax risks requires not only compliance with existing legislation but also closely monitoring changes in administrative practices and judicial rulings. The Turkish tax administration enforces strict oversight on taxpayers’ declarations through automated information-sharing systems, risk analysis mechanisms, and cross-audits. In this context, ensuring timely and accurate tax compliance is crucial to avoid penalties and additional financial burdens.

5.1. Tax Audits and Risk Areas

In Turkey, tax audits are conducted by the Revenue Administration (Gelir İdaresi Başkanlığı – GİB) and the Tax Inspection Board (Vergi Denetim Kurulu Başkanlığı). Audits may be triggered due to inconsistencies in tax returns, unusual profit declarations, improper use of tax incentives, or unrecorded transactions.

The primary risk areas subject to tax audits include:

• Incorrect or incomplete income declarations: Discrepancies between declared corporate income and bank records, import-export data, or other financial documents may lead to tax audits.
• Unjustified expense deductions: Declaring non-business-related expenses as deductible costs may result in disallowed deductions and additional tax liabilities.
• Transfer pricing and related-party transactions: For foreign-invested companies, ensuring arm’s length pricing in intra-group transactions is critical. Non-compliance with transfer pricing regulations may lead to tax reassessments and penalties by the Revenue Administration.
• Misuse of tax incentives and exemptions: To qualify for tax incentives and exemptions in Turkey, companies must comply with strict procedural requirements. Failure to complete investment incentive certificates within the required timeframes or attempting to claim incentives for ineligible transactions may result in the revocation of benefits and retroactive tax assessments.
• Thin capitalization practices: Foreign companies operating in Turkey must adhere to specific debt-equity ratio limits when financing their Turkish subsidiaries or branches. Excessive borrowing may lead to non-deductibility of interest payments and an increase in taxable corporate income.

Tax authorities continuously enhance their risk assessment methodologies, using automated data exchange, international financial intelligence cooperation, and digital tax systems to conduct more comprehensive audits of corporate tax returns.

5.2. Tax Disputes and Resolution Mechanisms

Following tax audits, Turkish tax authorities may impose additional tax assessments or penalties on companies. In such cases, taxpayers have the right to challenge these decisions through administrative and judicial remedies.

The main mechanisms for resolving tax disputes in Turkey include:

• Tax Settlement: If an additional tax assessment is imposed after a tax audit, taxpayers may negotiate a settlement with the tax office to reduce their penalty liabilities. Settlement procedures help expedite administrative processes and lower tax burdens.
• Litigation: Taxpayers may challenge tax assessments and penalties by filing a lawsuit before the Tax Courts (Vergi Mahkemeleri). However, considering the lengthy judicial process and potential legal costs, taxpayers are advised to evaluate settlement options before proceeding with litigation.
• Tax Restructuring and Amnesty Programs: Periodically, the Turkish government enacts tax restructuring laws, allowing businesses to restructure past tax debts and benefit from reduced late payment interest rates. These programs provide significant opportunities for companies to mitigate historical tax risks.

Effectively managing tax risks and compliance processes not only reduces financial burdens but also enhances a company’s financial stability and corporate reputation. For investors operating in Turkey, strict compliance with corporate tax legislation and proactive tax risk management are essential for long-term business sustainability.

VI. Conclusion

For investors planning to establish operations in Turkey or expand their existing businesses, corporate tax regulations play a crucial role in both cost management and legal compliance. The distinction between resident taxpayer  and non-resident taxpayer significantly impacts tax obligations and is a key factor for investors to consider when structuring their companies.

Companies operating in Turkey must have a thorough understanding of corporate tax rates, tax base calculation methods, tax return filing obligations, and payment procedures. Additionally, investment incentives, free zone benefits, and double taxation avoidance agreements provide valuable opportunities for businesses to optimize their tax burdens.

Ensuring compliance with tax legislation is not only essential to avoid penalties and administrative sanctions but also plays a strategic role in long-term business planning. In particular, companies engaged in international operations must assess Turkey’s tax framework alongside their home country’s tax system to minimize double taxation risks and adopt the necessary preventive measures.

For investors seeking to establish a business in Turkey, selecting the right corporate structure, analyzing tax obligations, and leveraging tax incentive mechanisms will be key to managing operations efficiently and competitively. Companies that ensure full compliance with corporate tax regulations and develop a robust tax strategy will gain a significant competitive advantage, enabling them to build a successful and sustainable business model in Turkey.